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Microsoft: Commercial cloud revenue to jump 55% to nearly $15B this fiscal year

Microsoft says total revenue from its commercial cloud businesses will reach an estimated $14.8 billion in its current fiscal year, ending June 30 — an increase of more than 55 percent from its result of $9.5 billion last fiscal year.

The company’s commercial cloud business includes Office 365 commercial, Azure, Dynamics Online, and other cloud products and services.

Amy Hood, Microsoft’s chief financial officer, disclosed the number just now during a briefing with financial analysts in conjunction with its Build developer conference in Seattle — seeking to illustrate the growth of the company’s cloud businesses as Microsoft continues to expand well beyond its traditional Office and Windows PC businesses.

The $14.8 billion from the commercial cloud businesses represents more than 15 percent of the $96.24 billion in overall revenue that Wall Street expects from Microsoft this year. That’s up from a ratio of about 10 percent in the previous year.

Microsoft says its commercial cloud business will also become more profitable, growing to an estimated 50 percent gross margin in the current year, up from a 45 percent gross margin last year. That results from a larger mix of revenue coming from the profitable Azure cloud business.

“I’m incredibly confident in the Azure business that we’ve built over the past year,” said Hood, addressing an analyst’s question after delivering her presentation.

The revenue number is different from Microsoft’s commercial cloud “run rate,” reported quarterly, which takes the most recent month of results from the company’s cloud products and extrapolates that over a year. That commercial cloud run rate topped $15 billion in the latest quarter, and Hood told analysts today that she expects the run rate to reach $20 billion next fiscal year.

Microsoft normally reports actual commercial cloud revenue only in its annual 10-K filing with the Securities and Exchange Commission, not as part of its quarterly results. Microsoft’s $9.5 billion in commercial cloud revenue in fiscal 2016 was from $5.8 billion in 2015, and $2.8 billion in 2014, according to its latest 10-K filing.

Amazon Web Services posted more than $12 billion in revenue in calendar year 2016, but Amazon’s is primarily an infrastructure and platform business, so the inclusion of Office 365 and Dynamics in Microsoft’s numbers means it’s not an apples-to-apples comparison.

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